Regional Integration, Trade and Investment in the Maghreb May 2005 9/19/2018

Background Trade and investment are the driving force for growth and employment generation Unilateral, regional and multilateral initiatives offer opportunities to stimulate trade and investment Policy consistency, sequencing and appropriate support can maximize gains and smooth adjustment costs 9/19/2018

MENA is poorly integrated in the global economy 9/19/2018

Maghreb countries have the lowest intra-regional trade… 9/19/2018

…..and lack integration into global production chains 9/19/2018

Key Domestic Constraints to Integration Tariffs and NTBs remain amongst the highest in the world Inefficient and under-developed services Business environment is improving but still fails to attract significant levels of investment Lack of quality control and certification limits ability to sell manufactures Lack of effective regional cooperation (in trade, services, infrastructures) discourages FDI inflows and access to production networks 9/19/2018

Example: number of firms with quality management standards is very low in the Maghreb 9/19/2018

Example: Eastern European countries trade with each other products they sell in EU: Maghreb countries do not 9/19/2018

Complexity of regional agreements has not helped economic integration 9/19/2018

Poor design and weak implementation have also contributed to poor outcomes Lack of results from RTAs because: Severe lack of transparency Too many product exemptions Poor sectoral coverage – services excluded Trade limited by licensing requirements Varying and restrictive rules of origin, And Lack of political will 9/19/2018

What can be done? Leverage trade policies to support trade, investment and growth Design unilateral, regional and multilateral trade policies to be consistent and mutually supportive Use the WTO process to reinforce domestic reforms and achieve reciprocity when reducing own barriers Aggressively integrate into European neighborhood and Single Market Invigorate regional agreements Facilitate adjustment 9/19/2018

Integrating into the European Neighborhood Exploit opportunities to improve market access and support domestic reform: Mutually liberalize all tariffs on agriculture Adopt and implement key New Approach regulations Liberalize key services sectors – financial, transport, business services Move towards EU disciplines on competition and state aids 9/19/2018

Invigorate regional agreements Make Regional and EU Agreements mutually supportive: Reduce external protection Ensure transparency and simple administrative procedures Avoid overlapping agreements Ensure level playing field for firms with effective disciplines on monopolies and state aids Open up services sectors 9/19/2018

Successful integration is associated with competition in services Why is services reform so important? Important productivity effects on other sectors Efficient services are crucial in attracting foreign investment Service liberalization has been associated with employment generation – which in turn limits adjustment costs in goods sectors Well functioning financial markets enhance growth 9/19/2018

Example : Services Liberalization generated employment in Eastern Europe 9/19/2018

Limit social impact of liberalization Improve flexibility of labor markets – economies with sluggish labor markets gain least from trade liberalization Improve efficiency of services, especially financial services – crucial to allow exploitation of new opportunities Support labor adjustment (unemployment insurance, retraining programmers, health) – direct policies to less-educated and low income Aggressively pursue improved market access in overseas markets – enlarge export opportunities Ensure effective competition policy and discipline on state aids – level playing field 9/19/2018